Different assets and risks

When thinking about your attitude to risk, a useful starting point involves getting to know the risks associated with the various different asset classes that you can invest in.

The four main types are cash, bonds, property and shares.

Cash

Cash is the least risky of the four asset groups and the most secure way to invest.

The problem is, cash tends to deliver the lowest returns; if the rate you earn on your cash is below the rate of inflation, the value of your money will be eroded over time.

Bonds

As an investor, you can buy bonds from companies (corporate bonds) or the government (gilts). A bond is a loan, with you as the lender. In exchange, you get a fixed rate of interest.

Bonds are popular among investors, as they are safer than shares. On the downside, you stand to gain less than with equities.

Property

There are lots of ways to invest in property, including buying your own home and purchasing a buy-to-let property. You can also invest in property funds, rather than buy your own.

Equities

Investing in equities – or shares – means buying a stake in one or more companies.

Based on historical trends, shares can offer the highest returns. But at the same time, they are the most risky asset class – and much more volatile than bonds. If a company does worse than the market expects, your shares can fall dramatically in value.

While you might get back more than you invested if you wait long enough, there’s a chance that when you want to sell, you will have to sell at a loss.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.